Filename: Taxflash-0711-mileage-rates.pdf

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Company car users - changes to tax free fuel rates June 2011

HMRC regularly publish approved “fuel only” rates which have, again, changed.

These rates apply if you are provided with a company car by your employer and you:

• claim a mileage allowance from your employer solely for the cost of fuel used on business journeys; or
• repay your employer for fuel used on private travel – including that between your home and normal workplace).

If you use the approved rates, you have certainty that you are claiming no more than the true cost of fuel used on business journeys and so will not be taxed on a “fuel benefit”.

The rates last changed on 1 March 2011 and have now been amended with effect from 1 June 2011 following further increases in fuel prices.

If you have been either claiming more for business mileage or repaying less for private mileage than the HMRC official rates, HMRC’s view is that fuel for private travel is provided by the employer – and therefore the car driver is taxed on the fuel benefit scale charge - unless the car user meets the cost of all fuel used privately. In the past when rates have changed, HMRC have said they would not pursue this line but no such reassurance has been given for some time. There is, therefore, a risk that company car drivers who might have paid a few pence less for their private travel than the official rate will be taxed on the full fuel scale benefit, which could add up to £2,500 to their annual tax bill. Employers would also be hit with extra Employer National Insurance on the fuel benefit.

The new rates effective from 1 June 2011 are as follows (previous rates shown in brackets);

Engine size                              Petrol                          Diesel                  LPG

Petrol 1400cc or less          15p (14p)                          -                   11p (10p)
Diesel 1600cc or less                 -                          12p (13p)                  -
Petrol 1401 to 2000cc         18p (16p)                          -                   13p (12p)
Diesel 1601 to 2000cc                -                           15p (13p)                 -
Over 2000cc                           26p (23p)                         -                   18p (17p)

In essence, if you repay your employer for fuel used on private travel, you need to increase your payments immediately (unless using diesel cars of 1,400cc or less) backdated to 1 June. Equally, those claiming business mileage from their employers can now claim additional amounts where appropriate.

If you are in any doubt as to the application of these changes to your circumstances, or wish to discuss the implications further, please do not hesitate to contact us. These changes do not affect employees or Directors who use their own cars for business travel, nor company car drivers whose employers pay for all of their fuel.

If you are in any doubt as to the application of these changes to your circumstances, or wish to discuss the implications further, please do not hesitate to speak to your usual UHY contact.